Weve made significant progress on improving our inspection results. The Internal Revenue Service is planning to mandate a new electronic fingerprinting process for e-file applications for tax pros starting Sept. 25. (The exception was BDO; its deficient engagement rate rose from 42 percent in 2019 to 54 percent in 2020.) We remain committed in making audit quality our top priority, said the firm. 2022 GAAP Dynamics All Rights Reserved. In 2020, that gap rose to 52 percent (2 percent for PwC versus 54 percent for BDO). AS 2201, An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements (requiring the auditor to communicate ICFR deficiencies to the audit committee and requiring the auditors report on ICFR audit to include certain language and disclosures) 5 violations (out of 17 engagements reviewed). The table below summarizes the results of the 2020 inspections of the six firms. For PricewaterhouseCoopers, 18 of the 60 audits inspected in 2019 were included in a section of the report that spotlights significant deficiencies. Continuing from there, Germany: The breakdown of the 15 top companies in Germany is as follows: Name Auditor Currency Sum of, Refer to our blog on the S&P 500 companies audited by PwC, Total employees and gender diversity in Big4, Biggest Companies in the world by market cap. In Part I.B of the inspection report, the PCAOB identified 6 instances of noncompliance with PCAOB standards or rules that did not relate directly to the evidence the firm obtained to support its opinion. On November 1, the PCAOB released the 2020 inspection reports for the U.S. affiliates of the six global network audit firms. Rule 3524, Audit Committee Pre-approval of Certain Tax Services (requiring the auditor to describe in writing to the audit committee certain information concerning permissible tax services and to document the substance of related discussion with the audit committee) -- 2 violations (out of 24 engagements reviewed). Second, due to Covid, the 2020 inspections were conducted remotely, rather than by in-person visits to firm offices and meetings with engagement team members. We passionately create high-quality training that we would want to take.
In 2018, 18.7 percent of inspection selections were random. In 13 of the 24 audits (54 percent), the PCAOB staff identified deficiencies of such significance that it appeared that the firm had not obtained sufficient appropriate audit evidence to support its opinion. And allowances, business combinations and intangibles involve the use of challenging estimates. Therefore, the number of Part I.B violations in a firms inspection report is not directly comparable to the number in other firms reports or to the number reported in prior years. Four of the eight engagements in Part I.A included deficiencies related to both the audit of the financial statements and of ICFR; four included only a financial statement audit deficiency. The following table compares the performance of the six firms based on the number of audit deficiencies in each inspection report and the number of auditing standards associated with those deficiencies. 2. The recently released 2019 inspection reports (which generally inspect 2018 audits) related to the following annually inspected firms (listed in alphabetical order): Inspections identify whether there are deficiencies in how the firm performed its audits and whether there are weaknesses in its quality controls over public-company auditing. Revenue recognition is always an area of concentration. Two inspection-process factors may however have played some role in the improvement in aggregate firm deficiency rates. The Board also inspects registered firms that play a substantial role in audits of issuers. In each inspection report, the PCAOB lists the financial statement accounts or audit areas in which deficiencies in Part I of that report most frequently occurred. Let us know if you might be interested! The detailed summary of Part I deficiencies of audit firms is noted below: Marked improvement by the big4 firms in 2020.
Other major firms whose inspection results were posted include BDO USA, which had 11 of its 26 audits included in Part 1.A; Grant Thornton, which had seven of its 31 audits highlighted; RSM, which had three of the 15 audits inspected included in that section; and Crowe, which had seven of the 14 audits inspected included in Part 1.A. In this blog well look into the total workforce of big4 firms and their gender representation. The PCAOB reviewed 53 Deloitte issuer audits, 50 of which were integrated audits of both the financial statements and ICFR. Seven of the 13 engagements in Part I.A included deficiencies related to both the audit of the financial statements and of ICFR; four included only a financial statement audit deficiency; and two included only an ICFR audit deficiency. As noted earlier, PwCs deficient engagement rate fell from a 30 percent (18 engagements) in 2019 to a record-setting low of 2 percent (one engagement) in 2020. The same auditing standard may have been cited more than once in an engagement described in Part I.A if the inspectors found more than one deficiency based on that standard. Would be interesting to read the next years report and see if similar percentages can be maintained by PwC and Deloitte. Registered firms that issue audit reports for more than 100 issuers are inspected annually. In 14 of the 53 audits (26 percent), the PCAOB staff identified deficiencies of such significance that it appeared that the firm had not obtained sufficient appropriate audit evidence to support its opinion. In addition, we take no responsibility for updating old posts, but may do so from time to time. This issue topped the 2019 and 2018 lists of financial statement audit deficiencies. Inspection reports for triennially inspected firms which include international firms and affiliates are still to come. The engagement in Part I.A included deficiencies related to both the audit of the financial statements and of ICFR. endstream endobj startxref As lifelong learners, we believe training is important. Keep up-to-date on the latest insights and updates from the GAAP Dynamics team on all things accounting and auditing. The table also shows the percentage of all deficiencies in the six reports that were based on each auditing standard. They were likely an area of concentration because of the increased use of technology and remote audit methods due to the pandemic. Since 2002, the Sarbanes-Oxley Act authorizes the PCAOB to inspect registered public accounting firms. For reprint and licensing requests for this article, Like what you see? 1. The PCAOB reviewed 53 KPMG issuer audits, 47 of which were integrated audits of both the financial statements and ICFR. Our clients include some of the largest accounting firms and companies in the world. In 2020, the PCAOB found an aggregate of 64 such violations (based on a review of 431 engagements). Firms that provide opinions for more than 100 issuers must be inspected each year. The most frequent Part I.A deficiency affecting the financial statement audit was a consequence of deficiencies in control testing: Did not perform substantive procedures to obtain sufficient evidence as a result of overreliance on controls (due to deficiencies in testing controls). The second most frequent financial statement audit deficiency was Did not sufficiently evaluate significant assumptions or data that the issuer used in developing an estimate. Deficiencies related to evaluating assumptions underlying estimates is a perennial audit challenge. The PCAOB described 61 deficiencies, associated with 64 auditing standard violations, in the 13 engagements in Part I.A. Only one engagement of the 52 that were subject to inspection being included in part 1.A, that reflects a number of steps were taking to enhance our assurance work. Be sure to subscribe to receive our email notifications. The eleven aforementioned firms are currently the only annually inspected audit firms. new inspection reports for annually inspected firms. For the six global network firm affiliates as a group, the overall deficient engagement rate fell by one-third -- from 24 percent of inspected engagements in 2019 to 16 percent in 2020. As you can see, three of the four firms decreased their deficiency rate from 2018! Crowe LLP is committed to performing high quality audits, and we have designed our quality control and monitoring systems to drive continuous improvement, said the firm. PCAOB 2020 Inspection Results: Deficiency Rates Fall, Internal controls over financial reporting, Response to the risks of material misstatement. MaloneBailey was inspected annually until the 2020 inspection cycle. In 2019, the gap between the global network firm with the lowest deficient engagement percentage (D&T) and the firm with the highest (BDO) was 32 percent. This post explores the results of the 2020 PCAOB inspection cycle. While these steps were certainly appropriate, it is possible that remote inspection procedures and a focus on how firms dealt with the pandemic caused inspectors to be less likely to turn up audit deficiencies that would have been detected in traditional inspections. Ernst & Young LLP. The PCAOB reviewed 24 BDO issuer audits, 17 of which were integrated audits of both the financial statements and ICFR. As CPAs, we believe great training is vital to doing your job well and maintaining the public trust. We believe it is good practice for all firms, regardless of size, to analyze audit deficiencies detailed in PCAOB inspection reports, make necessary changes to their audit procedures, and improve the quality of their training. While the information contained here focuses on our inspections of issuer audits, more information on broker-dealer inspections can be found on our dedicated page. And while youre at it, make sure to download our FREE PCAOB eBook, which analyzes PCAOB inspection reports of the annually inspected firms over the past ten years (with all these new reports I guess its time for another edition!). The auditing standards most frequently cited as the basis for audit deficiencies in Part I.A of the 2020 inspection reports of the six firms are listed in the table below. It really reflects the positive investments weve made and the leadership of our people., For KPMG, the PCAOB said the identified deficiencies primarily related to the firms testing of controls over and/or substantive testing of revenue and related accounts and business combinations. The Quality Council, which includes two outside members, advises our Partnership Board and Senior Leadership Team on our audit quality, and provides deep, practical, and objective advice regarding ways we can continue to deliver high quality., For RSM, the deficiencies mainly related to the firms testing of controls over and/or substantive testing of the allowance for loan losses. In 2019, the Board found deficiencies in 18 out of 60 (30 percent) of the PwC audits it inspected. Use tab to navigate through the menu items. The PCAOBs inspection process assists us in improving our audit performance and our underlying quality control systems. At Deloitte, 53 inspections found nine deficiencies with ten associated standards (all in two engagement) or 0.17 deficiencies and 0.19 standards per engagement. (508) 476-7007 | 9 Main Street Suite 2F, Sutton, MA 01590. Most selections are based on the PCAOBs internal evaluation of audits believed to have a heightened risk of material misstatement, including those with challenging audit areas, and also other risk-based characteristics, including the issuer and specific firm considerations. In 2020, the Board found only one deficient audit (2 percent) out of 52 engagements inspected a record low for any Big Six firm. The next seven firms were improving. In Part I.B of the inspection report, the PCAOB identified 16 instances of noncompliance with PCAOB standards or rules that did not relate directly to the evidence the firm obtained to support its opinion. We support the PCAOBs inspection process and believe that it helps us improve the quality of our audit engagements, wrote RSM US managing partner and CEO Joseph Adams and national audit leader Joel Shamon. Firms that issue 100 audit reports (or less) are generally inspected at least once every three years and firms that issue more than 100 audit reports are inspected annually. 160 0 obj <>/Filter/FlateDecode/ID[<0E4F00778B051D4984A6A83EF017F567><5BF541402DC5774CA5BA4263BE637247>]/Index[134 45]/Info 133 0 R/Length 121/Prev 201015/Root 135 0 R/Size 179/Type/XRef/W[1 3 1]>>stream AS 1301, Communications with Audit Committees (requiring the auditor to communicate certain matters to the audit committee) 13 violations (out of 73 engagements reviewed). Copyright 2003-2022 Public Company Accounting Oversight Board. Lawmakers introduced two bills that would affect the Child Tax Credit, the Lifetime Learning Credit and marijuana taxes. Below is an overview of Part I.A and Part I.B the 2020 inspection reports for the six U.S. affiliates of the global network firms: BDO USA, LLP. At the other end of the spectrum, in 24 BDO engagements inspected, the staff found 61 deficiencies and cited 64 standards, an average of 2.54 deficiencies and 2.67 standards per inspected engagement 25 times more deficiencies per inspected engagement than at PwC. Like PwC, Deloittes deficient engagement rate dropped into the single digits at 4 percent, continuing that firms multi-year record of declining deficiencies. All five of the engagements in Part I.A included deficiencies related to both the audit of the financial statements and of ICFR. Comments: In its inspection reports, the PCAOB cautions that its inspection results are not necessarily comparable over time or among firms. Accordingly, drawing reliable conclusions about firm or profession-wide trends in audit quality from inspections reports is problematic. This trend reversed in the past two years. Cohen and Co was added during 2017. Little changed about the accounting topics referenced in the accounting deficiencies. Like PwC, Deloittes deficiency rate also dropped into the single digits at 4 percent. We want to help you understand complex accounting matters and we believe you deserve the best training in the world, regardless of whether you work for a large, multinational company or a small, regional accounting firm. In order to drive continuous improvements in quality, we are transforming the audit to leverage innovative technologies, along with enhancing the skill sets of our talent to prepare them for a digitally driven future. Further, the PCAOB has stated that in 2020 it adjusted its inspection approach to consider the impact of COVID-19 on the audits to public companies. See, AUDIT COMMITTEE AND AUDITOR OVERSIGHT UPDATE, Spotlight: Staff Update and Preview of 2020 Inspection Observations. For the Big Four, the deficient engagement rate declined from 25 percent in 2018 and 22 percent in 2019 to 12 percent of all inspected engagements in 2020. In PwCs case, the identified deficiencies for 2019 mainly related to the firms testing of controls over and/or substantive testing of revenue and related accounts, income taxes, the allowance for loan losses, investment securities and inventory. Good luck on your next inspection cycle! In this course we dive into PCAOB inspection report trends and focus areas, including recent changes to auditing standards (such as estimates and the use of specialists). Of the 5 audits reviewed, exceptions were identified in the expense area in 40% of them. PricewaterhouseCoopers LLP. The PCAOB reviewed 52 PwC issuer audits, 50 of which were integrated audits of both the financial statements and ICFR. As noted above, Part I.B of an inspection report describes auditing standard or PCAOB rule violations discovered in the inspection that did not directly affect the auditors opinion. In Part I.B of the inspection report, the PCAOB identified three instances of noncompliance with PCAOB standards or rules that did not relate directly to the evidence the firm obtained to support its opinion. That is reflected in the results. Part I.A of a firms inspection report describes audit deficiencies of such significance that it appeared to the PCAOB that the firm had not obtained sufficient appropriate audit evidence to support its opinion on the financial statements and/or internal control over financial reporting (ICFR) of the issuer (i.e., the public company under audit) at the time the opinion was released. At the same time, deficiencies are presumably less likely to be found in engagements selected at random than in those selected based on an assessment of the engagements inherent difficulty or risk. These violations related to: AS 3101, The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion (requiring the auditor to perform procedures to identify critical audit matters (CAMs) and to discuss CAMs in the auditors report) 25 violations (out of 134 engagements reviewed). PwC had just one exception in 2020. PwC and Deloitte led the way with just 2% and 4% deficient audits during 2020, respectively. Terms and Conditions | Privacy Policy, Accounting and Auditing Update collection. Other indicators of the relative performance of the six firms are the number individual audit deficiencies in each report and the number of auditing standards violations associated with those deficiencies. Deloitte & Touche LLP. Five of the six firms had lower deficient engagement rates in 2020 than in 2019. (Deficiencies in the financial statement audit do not, of course, necessarily mean that the financial statements were misstated.). KPMGs exception areas is noted below. In 2020, frequent deficiencies affecting the ICFR audit fell to 50 percent. Executing high-quality audits is our number one priority, wrote Deloitte CEO Joseph Ucuzoglu and Deloitte & Touche chair and CEO Lara Abrash in response to the report. The PCAOB inspection cycle having recently been completed, and our own internal inspection cycle also having been concluded, I feel really good about the progress weve made.
Refer to our blog on the S&P 500 companies audited by PwC. Meet the Newest Members of GAAP Dynamics! | Tags: In the news, Auditing. The specific actions we have taken and continue to take to achieve these improvements are discussed in our 2020 Audit Quality Report as we seek to provide transparency to our stakeholders about our overall efforts to improve audit quality., For EY, the deficiencies mostly related to the firms testing of controls over and/or substantive testing of revenue and related accounts, business combinations and long-lived assets. In Part I.B of the inspection report, the PCAOB identified two instances of non-compliance with PCAOB standards or rules that did not relate directly to the evidence the firm obtained to support its opinion. For each deficiency noted, the inspection report references the relevant audit standard(s). PwC PwC has 295,371 employees across the world with 11,897 partners. This compares to Grants 23 percent deficiency rate in 2019. As measured by these PCAOB inspection findings, audit quality seems, at first glance, to have improved significantly, compared to last year. Further, the PCAOB has stated that in 2020 it adjusted its inspection approach to consider the impact of COVID-19 on the audits to public companies. See Spotlight: Staff Update and Preview of 2020 Inspection Observations. In two of the 53 audits (4 percent), the PCAOB staff identified deficiencies of such significance that it appeared that the firm had not obtained sufficient appropriate audit evidence to support its opinion. Marcum was added during the 2016 inspection cycle. The inspectors found ICFR audit deficiencies in 14 percent of the integrated audits they inspected, down from 23 percent in 2019 and 26 percent in 2018. The report says the one exception was identified in the Industrials sector with revenues ranging from $10 to $50 billion. These metrics differ from the percentage-of-deficient engagements measure because an engagement included in Part I.A may involve more than one deficiency and a deficiency may be associated with a violation of more than one auditing standard. A look at the biggest regulations, legislation and court cases in the field from the first half of the year. The following represent the 2019 top 5 accounts (areas) for both the Big 4 and Non-Big 4 firms: We also have online, eLearning courses covering each of these top 5 areas. All rights reserved. Changes in the inspection process do not appear to have significantly impacted deficiency findings. In 2019, over half (55.3 percent) of the most frequently cited deficiencies affected the ICFR audit. Global revenues increased by 4% to $40 billion. Meet the newest members to join the team and learn more about their eLearning and marketing superpowers! The PCAOB found violations in the financial statement audit in 14 percent of the engagements it inspected, and 86 percent of engagements in Part I.A included a financial statement audit deficiency. endstream endobj 135 0 obj <. We are confident that our ongoing digital transformation, along with the investments we continue to make in our audit processes, policies, and quality controls, are resulting in significant enhancements to our audit quality., For BDO, the deficiencies identified by the PCAOB inspectors mainly related to the firms testing of controls over and/or substantive testing of revenue and related accounts and income taxes. The rate of deficient audits has been improving. Continuing a decade-long trend, the 2020 inspection results highlight the PCAOBs focus on ICFR auditing, although ICFR audit deficiencies may be starting to plateau. Assumptions underlying estimates and use of information provided by the entity are stumbling blocks in financial statement audits. This compares to PwCs 30 percent deficiency rate in 2019. And were always here to help you achieve that! The overall percentage of these firms inspected audits that the PCAOB found deficient fell from 24 percent in 2019 to 16 percent in 2020. In 2019, the Board found financial statement audit deficiencies in 21 percent of the audits it inspected, and 87 percent of all deficient engagements included at least one financial statement audit deficiency. The table below summarizes the results of the 2020 inspections of the six firms. ICFR audit deficiencies seem to be leveling off. For the one exception, deficiencies were identified in revenue and inventory.